Benzinga | May 3, 2021 12:49PM EDT

Car Rental Companies Are Buying Used Cars Due To Chip Crisis: Bloomberg

* The semiconductor chip crisis-fueled car production cuts have compelled the rental-car companies like Hertz Global Holdings Inc (OTC: HTZGQ) and Enterprise Holdings Inc to purchase used cars from auctions, Bloomberg reports.

* The rental car companies previously purchased new cars in volume and rented them out for a year, followed by their sale at an auction. They previously purchased used cars for occasional demand spike only.

* The demand spike has led to the burgeoning price of second-hand cars, increasing 52% year on year based on Manheim Index.

* The car production cut is estimated to translate into higher profits for the rental companies through higher pricing. However, it will affect the demand from vacationers.

* Cars are being rented in Florida, Hawaii, Puerto Rico at $100, $200, and $600 a day in Puerto Rico. Higher traveling and lower inventory are further estimated to drive the costs within the next couple of weeks.

* Hertz and Enterprise aggressively added low-mileage, second-hand cars from auctions, online auctions, dealerships, and vehicles coming off lease programs to tap the travel rebound.

* Price action: HTZGQ shares traded higher by 13.9% at $2.58 on the last check Monday.